According to Money Manager Jeremy Grantham, S&P (.INX) to Fall Below Fair Value.
He is buying though. He is focused on companies with “strong balance sheets”. That seems to be the overwhelming refrain from people who are buying in the market now. A companys’s balance sheet will matter more than ever.
Disclosure (“none” means no position):none
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Recent SEC filings today show Dow Chemical (DOW) insiders purchasing shares.
EVP Hienz Haller bought 10,000 shares Monday bringing his direct holding to just under 86K shares.
EVP Charles Kahlil bought 3,200 shares the same day bringing his direct holdings to 122k shares.
The executives spent in excess of $310k of their own money buying the shares in the first insider purchase since August. I would expect more to be filed in the coming days. I also recognize these are not huge purchases but again, I would expect more executives to step up to the plate soon.
Now Dow has the endorsement of Berkshire’s (BRK.A) Warren Buffett becoming the largest individual shareholder and it executives are, as Warren likes to say “eating their own cooking”.
Disclosure (“none” means no position):Long Dow, none
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Here are the final details and full SEC filing between Berkshire Hathaway (BRK.A) and Dow Chemical (DOW).
Purchase.
On the terms and subject to the conditions set forth herein, the Investor agrees that upon the furnishing of a written notice to it by the Company as set forth in Section 1.2(a) it will purchase, or will (upon giving written notice thereof to the Company) cause one or more direct or indirect subsidiaries of the Investor of which the Investor beneficially owns at least 80% of the equity interests (measured by both voting rights and value) (each, a “Permitted Transferee”) to purchase, from the Company an aggregate of 3,000,000 shares of the Company’s Cumulative Convertible Perpetual Preferred Stock, Series A (the “Convertible Preferred Stock”) convertible into shares of the common stock of the Company, par value $2.50 per share (the “Common Stock”), and having the powers, preferences and rights, and the qualifications, limitations and restrictions, as specified in the Certificate of Designations in the exact form attached hereto as Annex A (the “Certificate of Designations”), at a price per share of $1,000 (an aggregate price of $3,000,000,000).
Purchase for Investment.
The Investor acknowledges that the shares of Convertible Preferred Stock and the shares of Common Stock into which they are convertible (the “Securities”) have not been registered under the Securities Act or under any state securities laws. The Investor and each Purchasing Permitted Transferee (1) is acquiring the Securities pursuant to an exemption from registration under the Securities Act solely for investment with no present intention to distribute any of the Securities to any person in violation of the Securities Act, (2) will not sell or otherwise dispose of any of the Securities, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (3) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Securities and of making an informed investment decision, and has conducted an independent review and analysis of the business and affairs of the Company that it considers sufficient and reasonable for purposes of its making its investment in the Securities, and (4) is an Accredited Investor (as that term is defined by Rule 501 of the Securities Act).
Lock-up Agreement.
Until the earlier of (i) the fifth anniversary of the Closing Date or (ii) the announcement of a Make-Whole Acquisition involving the Company, the Investor shall not, without the prior written consent of the Company, directly or indirectly (x) offer, transfer, hypothecate, sell, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of the Convertible Preferred Stock, any Common Stock received upon conversion of the Convertible Preferred Stock or its economic exposure to the Common Stock (“Lock-up Securities”), (y) enter into any Hedging Transaction (as defined below) involving Lock-up Securities, or (z) publicly announce any intention to do any of the foregoing. The foregoing restrictions shall not apply to any (m) transfer by the Investor and its Permitted Transferees of the Lock-Up Securities among themselves or (n) any offer, transfer, hypothecation, sale, contract to sell (including any short sale), grant of any option to purchase or other disposal of any Common Stock received in the form of dividends on the Convertible Preferred Stock or received in lieu of cash for Past Due Dividends in the event of Conversion at the Option of the Holder pursuant to Section 7 of the Certificate of Designations. “Hedging Transaction”, with respect to any Lock-Up Security, means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including any put or call option, swap or other derivative transaction whether settled in cash or securities) to obtain a “short” or “put equivalent position” with respect to the Common Stock, or any other agreement or transaction that reduces, in whole or in part, directly or indirectly, the economic consequence of ownership of such Lock-Up Security. For the avoidance of doubt, a Hedging Transaction shall not include a transaction that is deemed to reduce the economic consequence of ownership of a Lock-Up Security only because the Investor is acquired by, or merges with or into, or transfers all or substantially all of its assets to, another person pursuant to such transaction.
Misc.
● The Company will pay dividends on the Convertible Preferred Stock, quarterly in arrears, at a rate of 8.5% per annum, in either cash, shares of Common Stock, or any combination thereof, at the option of the Company.
● Holders of Convertible Preferred Stock may convert all or any portion of the Convertible Preferred Stock, at their option, at any time at the conversion rate of 24.2010 shares of Common Stock for each share of Convertible Preferred Stock, subject to anti-dilution adjustments as specified in the Certificate of Designations. In addition, if holders of Convertible Preferred Stock elect to convert the Convertible Preferred Stock in connection with the occurrence of certain changes in the ownership of the Company (as specified in the Certificate of Designations), they will be entitled to receive additional shares of Common Stock upon conversion under certain circumstances as further described in the Certificate of Designations.
Each preferred share has a value of $1000. At the conversion rate it equates to a $41.32 share price for Dow.
Simply put, let’s compare a buyer of the stock today vs Buffett. For the example lets say in 4 years Buffett convert and the stock site at $42.
Warren has earned 8.5% per year on his yield and today’s common buyer has earned 7.3% (assuming no dividend growth for 4 years, which has ever happened in almost 100 years). Warren now holds common shares that have appreciated 1%, the buyer of the common today has seen his holding appreciate 86%.
Risk?
The common share price falls. In this case the holder of the common suffers a loss and Buffett keep his 8.5%. But, Buffett is sitting on dead money in the conversion price. At this much of a discount, the common holders buying today have a far better risk reward than Buffett. Even if the common only rallies 50% from here, Buffett is still sitting on a conversion loss and the common holder is far better off.
FULL FILING
Disclosure (“none” means no position):Long Dow , None
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Pershing’s Bill Ackman has a new plan for Target (TGT). His will present it tomorrow at 1:30. I will be on the presentation and comment accordingly.
New York, NY, October 28, 2008 – Pershing Square Capital Management, L.P. announced today that it will host a public presentation on Wednesday, October 29, 2008 where it will detail a potential transaction that Pershing Square believes will build long-term value for Target Corporation (NYSE: TGT) and all of its stakeholders. All parties are welcome to attend the presentation, which will be of particular interest to investors and analysts focused on retail, real estate, fixed income and credit.
Pershing Square is a long-term investor in Target. Since acquiring its initial stake in April 2007, Pershing Square has beneficially acquired slightly less than 10% of the company’s outstanding common stock.
Target’s thoughtful and constructive approach with shareholders has been instrumental to Pershing Square’s work in developing a potential transaction. Pershing Square believes that the insights gained by sharing the potential transaction in a public forum will benefit Target and all of its stakeholders.
The presentation will be based solely on publicly available information, as well as assumptions, estimates and projections of Pershing Square.
If anyone has any questions, I will try to ask them. Just leave them in the comments
Disclosure (“none” means no position):
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Reader Ryan sent this to me..
Check out both the huge volume and sell-offs at the end of the day recently.
You can view it here
The lesson? Until we get a string of days that do not nosedive at the close on huge volume, buyers might want to be cautious. Now is not the time to select index funds in the S&P (.INX) or Dow (.DJI) as they will plummet along with the market.
Now is the time for stock selection.
Disclosure (“none” means no position):None
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Obama on Radio calling for “redistribution of wealth” and the Constitution’s “fundamental flaw”
Here is a pdf. link to Ben Graham testimony before congress in 1955 in regards to a Stock Market Study he did for it.
For those not sure who Ben Graham is, he was Berkshire Hathaway’s (BRK.A) Warren Buffett’s mentor.
Here is the link
Disclosure (“none” means no position):None
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This is one of the better video’s I have seen..
A conversation about leadership at the Harvard Business School centennial celebration with John Doerr – venture capitalist, Kleiner Perkins Caufield & Byers, Jeffrey Immelt – chairman and CEO, General Electric (GE), Anand Mahindra – vice-chairman and managing director, Mahindra & Mahindra, Meg Whitman – former CEO, Ebay (EBAY) and James Wolfensohn – former president of the World Bank
Disclosure (“none” means no position):Long GE, none
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Why is Bernanke pushing another stimulus when Paulson’s banks plan has only just begun?
Last week before Congress Bernanke said the following:
Now, did you ever hear the saying “the cure is worse than what ails you”? I get that things aren’t that great. I gt that thew Fed and Treasury feel the needed to do something. I get something has to be done.
But, when you have a near trillion dollar plan that has only just begun to take effect, ought not we wait just a bit and see how it works before we go pump another 1/2 trillion or so of taxpayer money into the system?
Isn’t the current complaint from both the left and the right of the political spectrum of his predecessor Alan Greenspan that he interjected himself into fiscal policy? won’t this backfire as foes from wither party will now use this decision against him and perhaps constrict his ability to use his powers in the future?
Bernanke has gotten broad authority from Congress in order to deal with the current crisis. One can argue whether of not he has used it wisely or should it have been granted to him but it was and he has mitigated what could have been a far worse scenario. The problem with what he is doing now is that he will become the fall guy for either party for anything that goes wrong from here. Should the stimulus not work, he will be accused of wasting taxpayer money for no result. Should its relief only be temporary (like that last one’s was) he will get accuse acting for the sort term, not what is best for the country long term.
No one is saying they think a stimulus will “cure” what ails us so Ben’s backing of it has no real long term positives for him.
Ever hear the saying “give a man enough rope to hang himself”. Congress just did it to Ben, he took the, rope and now they have their fall guy.
Much of what the Fed can accomplish is based on what people thin of the institution and its leader. The general perception of Ben is that he has done a great job thinking outside the box recently and has saved us from much worse. That gives markets some degree of confidence we will get though this.
When Congress takes his forray into their domain and uses that as a reason the cast blame from themselves to him, his ability to calm Main St. or the Markets (.INX) ,(.DJI) in the future will be severely restricted.
That is far worse than whether or not any stimulus is a good idea…..it isn’t by the way..
A couple of event in the last two weeks have me thinking about coal.
Today Arch Coal (ACI) said third-quarter net income more than tripled to $97.8 million, or 68 cents a share, from $27.3 million, or 19 cents a share in the year-ago period. Revenue increased to $770 million from $599 million. Wall Street analysts expected the St. Louis coal producer to earn 61 cents a share on revenue of $772 million, according to a survey by FactSet Research. Arch’s trading and optimization function reported an $18.4 million loss in the third quarter, offset by a $26.9 million income tax benefit. “Despite a near-term softening of coal demand, we remain on pace to deliver our best financial performance in company history,” Arch Coal said.
Now, last week Peabody (BTU) announced a $1B buyback that at current levels amounts to 12% of its market cap. With the Arch news, it would seem the fundamentals of the business in no way relate to the current stock price action would indicate.
Third. It was reported last week that India was in the US shopping for coal deposits.
Now, while coal demand may be softening, it has not evaporated as the share price of
both would suggest (down over 60%). When we have other nations here looking for coal, we can only assume they need much more than they have. That is good for global producers like BTU.
BTU which earned $1.37 in 2007 has earned $2.37 a share through the first nine months of 2008 and will add 12% to that down the road just through the share repurchases. Peabody trades at 9 times very conservative estimates for the remainder of 2008 and just 6 times the low end estimates for 2009 (the estimates were done before the share repurchase plan was announced).
Coal is one of those things we cannot live without. More than that, the rest of the developing world wants it really bad. It is a nice business to be in, especially when the stocks are priced at these levels..
Disclosure (“none” means no position):none
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A sign of the times and a really unique idea. Thanks to Jud for the tip..
San Francisco — Sears (SHLD) is offering VenJuvo’s Trade4Credit program to Sears.com shoppers that allows consumers to earn Sears store credit in exchange for trading in pre-owned electronics that have been determined to still hold value.
The program, which offers free recycling and shipping, will accept a variety of electronics including iPhones, digital cameras and camcorders, MP3 players, GPS systems and gaming systems.
“At Sears we’re always looking for ways to help our customers maximize their spending dollars,” said Jonathan Magasanik, VP/general merchandise manager of home electronics for Sears Holdings. “The Trade4Credit program does just that by providing our customers with an easy way to transform their used electronics into store credit they can use to buy the Sears products they’ve really been wanting.”
To use the service, consumers simply have to log onto www.sears.trade4credit.com, select their item and enter the specifics about their device so the system can calculate an estimated trade-in value. Once the value is established, the user can print out the prepaid mailing label and send the device to VenJuvo. Once the device is received, VenJuvo will validate the value and within three days of that point the user will be able to collect a Sears gift card for that value.
This is a great idea. The program currently has a couple dozen brands, but is sure to be expanded. Rather than throwing away those electronic devices, the opportunity to get something for them must intrigue more than a few people. It does me. The beauty of it is that there is no cost to the consumer, not even postage, just print the label and ship…easy..
Is it a cure-all? No. But it will garner the retailer a look for those looking to upgrade or replace certain items.
Disclosure (“none” means no position):Long SHLD
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This is an excellent explanation of the issue.
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Word is out today that Goldman Sachs (GS) approached Citigroup (C) last month to proposed a merger .
Citigroup CEO Vikram Pandit rejected the idea from Goldman Sachs CEO Lloyd Blankfein, the FT said, citing people it didn’t identify.
The deal, which was to have been structured as a takeover of Goldman by Citigroup, would have led to the firing of thousands of workers in the investment banking units of the two companies, and the loss of several senior executives, the newspaper said
However, uniting Goldman’s strengths in risk management, advisory services and proprietary trading with Citi’s large retail deposit base and huge corporate client network could have created a powerful financial giant.
Industry insiders argue that such a deal could have also benefited the US financial system by creating a counterpoint to JPMorgan Chase and Bank of America, two institutions that have significantly expanded during the recent raft of government-induced rescue deals.
The tone of the article was that Citi rejected the proposal out of hand. Now, this is odd for a couple reasons. First we know Citi has the largest exposure to the current mortgage market problem. Second, they can’t be in that strong of a financial position as their proposed takeover of Wachovia (WB) was not able to be accomplished without FDIC assistance. Wells Fargo (WFC), on the other hand, walked in and did the deal on its own.
So, one has to wonder why it was not even considered? Perhaps the “culture” differences are just so great, consolidating them would have been too difficult. But, if Goldman thought it was doable, why not even consider it?
This raises even more questions about Citi. Goldman is known as the class of the industry and if Citi won’t even consider a tie-up with them, then what is it about Citi that makes it so prohibitive? Is it a fear of Goldman merging and then taking over? If that is the case then wouldn’t that be the best for Citi shareholders in the long run? Isn’t that what Pandit & Co. are really there for?
It isn’t the fact that Citi turned the overture down that ought to concern people, it is the “without consideration” of the action that ought to.
Disclosure (“none” means no position):Long GS,C
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Biden, Thank -you, Reich
– Why does Obama let him talk?
– Thank you for the mention
– I actually agree with Reich….scary
Disclosure (“none” means no position):
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Pimco’s Co-President talks about the current environment. He says investors should look for the high quality names that have been damaged in the sell off and pay attention to the capital structure of the company.
He also said he was encouraged by the recent activity in the credit markets.